At the same time, WGN America, the station's national cable counterpart, will beam reruns of the sitcom "How I Met Your Mother" to its 75 million subscribers across the country.

Part of Tribune Co.'s future may rest with programming decisions like that.

Poised to emerge from its lengthy bankruptcy, the Chicago-based media company is expected to enter the new year with its holdings intact, a clean balance sheet and a plan to sell everything eventually.

The expected decision to name television executive Peter Liguori as Tribune Co.'s chief executive -- he was the architect of basic cable powerhouse FX's first-run success -- points to unlocking the value of the 34-year-old superstation as integral to a profitable exit strategy for the new owners of Tribune Co.

A source close to the situation told the Tribune that Liguori sees WGN America as an undervalued cable network with tremendous potential, if it gets the programming investment required. Developing the channel will "absolutely be a focus" after Liguori joins the company, which could happen within weeks.

"I'm sure that's the plan," said Derek Baine, a senior media analyst with SNL Kagan. "It all comes down to how much money you're investing in programming to get the viewers."
The new owners, senior creditors Oaktree Capital Management, Angelo, Gordon & Co. and JPMorgan Chase, have made it clear that monetizing Tribune Co.'s publishing, broadcasting and other holdings after a four-year slog through Chapter 11 is a matter of time. The process will likely challenge the maxim that the whole of Tribune Co. -- estimated to be worth $4.5 billion post-emergence -- is more than the sum of its parts. That's especially true when one of those parts is national cable channel WGN America, a low-rated repository of Cubs games and reruns, whose upside potential may dwarf all of the other assets combined.

Broadcasting assets, including 23 television stations, WGN-AM 720, CLTV and WGN America, represent the core profit center and account for $2.85 billion of Tribune Co.'s value, according to financial adviser Lazard. Tribune's eight daily newspapers, including the Chicago Tribune, are worth $623 million, and other strategic assets, such as stakes in CareerBuilder and Food Network, are valued at $2.26 billion, according to a 2012 report by Lazard.

The value of the TV stations, including KTLA-TV in Los Angeles and WPIX-TV in New York, should benefit from an improving appetite for acquisitions, according to analysts. But WGN America, with the help of a few hit shows and some rebranding, could be the sleeping giant on the books. Turner Broadcasting's TBS, for example, has five times the audience and seven times the cash flow of WGN America and carries a distinct brand. It is worth more than twice that of the entire Tribune Co.

Liguori's success at FX Networks could well be the blueprint. After joining what was a small basic cable channel in 1998, Liguori was elevated to CEO in 2001 and transformed the network by offering original programming such as "The Shield," "Nip/Tuck" and "Rescue Me," building ratings and revenues in the process.

"You just need a couple of hit shows and then you can start building a schedule around them," Baine said. "A lot of these cable networks, you take one hit show and get people hooked on it and then you can stick another one in the time slot right behind it and start building on that."
Last year, FX had a cash flow of nearly $553 million on net revenue of more than $1 billion, making the network worth nearly $8 billion, Baine said.

WGN America is often compared with TBS to illustrate the upside, and the divergent paths the two original superstations have taken as the cable network model -- a dual revenue stream of affiliate fees and advertising dollars -- has evolved over the last two decades.

Both WGN and WTBS were uploaded to satellite in the late '70s, filling the programming void for distant cable systems with local baseball and "Andy Griffith" reruns. TBS became a division of Time Warner in 1996 and transformed into a full-fledged cable network, shelving old reruns for off-network sitcoms, benching the Atlanta Braves for national MLB coverage and rolling out first-run programming featuring everything from Tyler Perry to Conan O'Brien. The network dropped "superstation" and rebranded itself with slogans such as "very funny."
One advantage FX, which is part of Rupert Murdoch's News Corp., and TBS have enjoyed is the connection to a media empire with programming prowess and deep pockets.

Meanwhile, WGN has clung to the vestiges of its lower-cost superstation model, meaning cable and satellite systems can't insert local commercials and must pay copyright fees for the programming to the government. Content shifts between local and national, with Cubs baseball and Chicago news still broadcast across the country. There is a dearth of first-run programming, and the schedule is dotted with such fillers as "In the Heat of the Night" and "Walker: Texas Ranger." Even Andy Griffith remains in the mix with "Matlock," part of a block of programming to cover the "WGN Morning News," which is not broadcast nationally.

Not surprisingly, WGN America lags TBS and FX in ratings, revenue and distribution.

TBS is ranked 11th, FX is 13th and WGN America 40th in average viewership among cable networks through November, according to Nielsen.

Of the more than 114 million homes receiving cable in the U.S., TBS reaches 99.7 million, FX 97.9 million and WGN America 75 million, according to Nielsen. One of the biggest holes in WGN's coverage area is New York City, where the station has never quite found its way into the cable lineup. Nationally, TBS and FX are included in the basic packages for Dish Network and DirecTV, while WGN America is relegated to the second or third tier.

Ratings translate directly into increasingly important affiliate fees -- the amount cable and satellite systems pay networks to carry their programming. This year, WGN is getting about 19 cents per average subscriber per month, while TBS gets 56 cents and FX 48 cents, according to SNL Kagan.

WGN America had net operating revenue of about $354 million in 2011, including $176 million in advertising revenue and $163 million in affiliate fees, according to SNL Kagan. The station spent a little more than $205 million in programming and had cash flow of $105 million.

TBS brought in nearly $824 million in advertising revenue and $640 million in affiliate fees, with its net operating revenue topping $1.5 billion in 2011, according to SNL Kagan. TBS invested nearly three times as much as WGN in programming -- more than $575 million -- but generated almost seven times the cash flow at more than $713 million.

While investing in WGN America is a gamble, the payoff could be huge for the new owners of Tribune Co. Mergers and acquisitions have heated up recently for cable networks, with valuations ranging from 12 to 16 times cash flow, Baine said.

Last month, YES Network sold a 49 percent stake to News Corp., a deal that valued the New York-based regional sports network at about $3 billion, or roughly 15 times cash flow. In October, DirecTV sold 18 percent of Game Show Network back to Sony Pictures Entertainment for $234 million, also a 15-times cash flow multiple, according to SNL Kagan.

Using 2013 projections, TBS would be worth $9.6 billion at a conservative 12-times multiple, while WGN America would be worth about $1.6 billion, Baine said.

Supercharging the superstation has been on Tribune Co.'s radar for years. In 1995, Tribune Co. leveraged its equity stake in the fledgling WB Network to broadcast the full first-run schedule on its superstation. That effort fell by the wayside, and the low-rated and money-losing network was eventually absorbed into the CW Network, of which 13 Tribune Co. stations are affiliates. None of CW's first-run prime-time programming airs on WGN America.

A succession of Tribune Broadcasting heads over the past decade have targeted the development of WGN America as a priority, none more visibly than Ed Wilson, a former Fox executive who was the first significant outside hire after Sam Zell took Tribune Co. private in December 2007.

Wilson, who replaced John Reardon as president of Tribune Broadcasting in February 2008, noted at the time that WGN was unable to crack the top 40 among national cable outlets.

"We believe that WGN the superstation has tremendous upside," Wilson said in a Tribune article. "We look at the success that Time Warner has had with WTBS, another superstation, and maybe we're a little envious."
By December 2008, Tribune Co. plunged into bankruptcy under the weight of the heavily leveraged $8.2 billion buyout, derailing plans to remake WGN into TBS. Wilson left the company in 2010 and now runs a California-based social media consultancy. He declined to comment for this story.

Wilson was replaced by Jerry Kersting, a longtime Clear Channel Radio executive who joined Tribune Co. in 2008. He was then supplanted by Nils Larsen, who became CEO of Tribune Broadcasting in June 2011. Larsen joined Tribune Co. in 2008 as chief investment officer.

Rebranded as WGN America in 2008, the erstwhile superstation remains profitable and has made some progress during the bankruptcy. This year, the network navigated blackout battles with DirecTV and Cablevision to secure new affiliate deals. Meanwhile, the programming budget is up nearly 50 percent over four years, and ratings have been growing with an infusion of off-network sitcoms. Thus, "How I Met Your Mother" bumps Bozo, at least outside of Chicago.

"They're trying," Baine said. "They've had significant ratings increases over the last couple of years, but they're still way behind."
rchannick@tribune.com
Twitter @RobertChannick
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